Delhi High Court Cuts FERA Penalty From ₹25 Lakh to ₹3 Lakh; Holds Penalty Within Statutory Maximum Still Requires Reasons and Proportionality in Export Proceeds Case
Delhi High Court Slashes Export Proceeds Penalty From ₹25 Lakh to ₹3 Lakh After Tribunal Failed to Explain Quantum
Facts
The appeal was filed by M/s Intersales and Rajiv Chachra under Section 54 of the Foreign Exchange Regulation Act, 1973 (“FERA”) read with Section 35 of FEMA, challenging an order dated 25 March 2009 of the Appellate Tribunal for Foreign Exchange.
M/s Intersales was originally a partnership firm constituted in 1986 between Rajiv Chachra and his mother, Pushpa Chachra, and was engaged in exporting garments. In August 1998, the partnership was dissolved and the business was taken over by Rajiv Chachra as a sole proprietorship.
The Enforcement Directorate alleged that the firm had exported goods under six Guaranteed Remittance Forms (“GRs”) worth US$62,256.50 but failed, without RBI permission, to take the necessary steps to realise the export proceeds within the prescribed or extended period.
The Adjudicating Authority held the appellants liable under Sections 18(2) and 18(3) read with Section 68(1) FERA and imposed penalties of:
- ₹25 lakh on M/s Intersales;
- ₹2.5 lakh on Rajiv Chachra; and
- ₹2.5 lakh on Pushpa Chachra.
Before the Appellate Tribunal, the appellants pointed out that three GRs had already been dealt with in earlier proceedings. The Tribunal accepted that GR Nos. 2 and 3 had already been adjudicated and that RBI had granted a write-off for GR No. 4. It nevertheless retained the entire ₹25-lakh penalty on the firm for the remaining GR Nos. 1, 5 and 6, while setting aside the separate penalties against Rajiv Chachra and his mother.
The surviving contravention concerned unrealised export proceeds of US$44,796.50, approximately ₹16.8 lakh at the relevant time.
Issues
The principal issues were:
- Whether the Tribunal could uphold a ₹25-lakh penalty under Section 50 FERA without giving reasons for the quantum.
- Whether a penalty is valid merely because it falls within the statutory maximum of five times the amount involved.
- Whether the doctrine of proportionality applies to the determination of penalties under FERA.
- Whether the Tribunal was justified in retaining the original ₹25-lakh penalty even after excluding substantial portions of the contravention considered by the Adjudicating Authority.
- Whether the matter should be remanded for fresh determination of penalty or whether the High Court could itself determine an appropriate amount given the age of the proceedings.
Appellants’ Arguments
The appellants did not ultimately contest the finding of contravention concerning GR Nos. 1, 5 and 6. Their challenge was confined to the quantum of penalty.
They argued that ₹25 lakh was grossly disproportionate to the surviving contravention of approximately US$44,796.50.
They contrasted this with an earlier adjudication involving US$17,460, for which a penalty of only ₹1 lakh had been imposed. Applying any comparable yardstick, they argued, a ₹25-lakh fine was manifestly excessive.
The appellants further contended that Section 50 merely prescribes the maximum permissible penalty. It gives the adjudicating authority discretion to impose a lesser amount, and that discretion must be exercised judicially.
They relied on Excel Crop Care Ltd. v. CCI for the proposition that penalty is not automatic and discretion must be exercised after considering relevant factors.
They also relied on Sunita Mehta, Marubeni India, Fuji Bank and Jaipur IPL Cricket to argue that a quasi-judicial authority must give reasons explaining how it arrived at the particular quantum imposed.
Respondents / Enforcement Directorate’s Arguments
The Enforcement Directorate argued that judicial review of penalty is limited and that the Court should interfere only where punishment is so arbitrary or disproportionate as to shock the conscience.
It pointed out that Section 50 permitted a penalty up to five times the amount involved in the contravention and therefore contended that ₹25 lakh remained well within the statutory range.
The ED further argued that the earlier ₹1-lakh penalty did not make the present penalty impermissible because the earlier penalty had been imposed on Rajiv Chachra, whereas the present ₹25-lakh penalty was against the firm.
It also submitted that mens rea is not an essential ingredient for civil adjudicatory liability under FERA.
Analysis of the Law
1. Section 50 prescribes a maximum, not an automatic penalty
Section 50 FERA provides that a person committing the relevant contravention is liable to a penalty not exceeding five times the amount or value involved or ₹5,000, whichever is more.
The High Court emphasised that the expression “not exceeding” necessarily confers discretion.
The maximum amount is therefore only the outer statutory ceiling. It does not mean that every contravention may automatically attract any amount below that ceiling without justification.
Where discretion is vested in a statutory authority, it must be exercised reasonably, judicially and on identifiable grounds.
2. Penalty must satisfy proportionality
The Court held that reasonableness requires the penalty to bear a rational relationship with the nature and magnitude of the contravention.
Drawing upon Coimbatore District Central Cooperative Bank, the Court recognised proportionality as a mechanism for controlling abuse of discretionary administrative power.
The decision-maker must balance the relevant considerations rather than simply select a figure falling within the statutory range.
3. Reasons are indispensable when fixing quantum
The High Court held that a quasi-judicial authority determining penalty must provide at least some reasons explaining why a particular quantum was chosen.
A bare statement that the penalty is “not harsh or excessive” does not explain:
- what factors were considered;
- how the seriousness of the contravention was assessed;
- why the particular figure was chosen; or
- why a lower penalty would be inadequate.
The Court therefore rejected the proposition that a penalty becomes lawful merely because it lies below the maximum permitted by Section 50.
Precedent Analysis
Coimbatore District Central Cooperative Bank v. Employees Association
The Supreme Court’s discussion of the doctrine of proportionality was relied upon to hold that courts may review whether an administrative authority has properly balanced competing considerations when exercising discretionary power.
The principle permits scrutiny of excessive or onerous penalties and manifest imbalance in the factors taken into account.
Excel Crop Care Ltd. v. Competition Commission of India
The Court relied upon Excel Crop Care for the proposition that imposition of penalty is not automatic.
The discretion to impose punishment must be exercised objectively, fairly and after considering relevant circumstances.
Jaipur IPL Cricket Pvt. Ltd.
The Bombay High Court decision in Jaipur IPL was particularly relevant because it dealt with penalties under foreign-exchange law.
It held that where an authority imposes a substantial or maximum penalty without explaining the basis for its quantification, the order becomes vulnerable for failure to apply the proportionality doctrine.
Mrs. Sudershan Boury v. Director of Enforcement
The Karnataka High Court had directly interpreted Section 50 FERA, holding that because the section specifies only the maximum penalty, the authority possesses discretion to impose anything below that limit.
That discretion must be exercised in a judicial manner, and the manner in which it is exercised gives rise to a question of law.
Fuji Bank, Marubeni India and Sunita Mehta
The Delhi High Court noted its own earlier decisions in which penalties were interfered with where there was no reasoned explanation for the quantum imposed.
Those authorities reinforced the requirement that a quasi-judicial authority cannot simply announce a penalty figure without explaining the basis for it.
Court’s Reasoning
The decisive factual feature was that the basis of the original penalty had materially changed on appeal.
The Adjudicating Authority had imposed ₹25 lakh while treating GR Nos. 1, 2, 3, 5 and 6 as contraventions.
The Appellate Tribunal subsequently:
- set aside the findings concerning GR Nos. 2 and 3 because they had already been adjudicated;
- acknowledged RBI’s write-off concerning GR No. 4; and
- sustained the contravention only for GR Nos. 1, 5 and 6.
This reduced the amount of contravention by US$14,797.35.
Despite that material reduction, the Tribunal left the same ₹25-lakh penalty untouched and provided no reason beyond stating that it was not harsh or excessive.
The Court found this legally inadequate.
It also found merit in the comparison with the earlier adjudication, where a violation involving US$17,460 had attracted only ₹1 lakh.
Against that benchmark, retaining ₹25 lakh for a surviving violation of US$44,796.50, without any explanatory reasoning, was disproportionate.
Why the Court Did Not Remand the Case
Ordinarily, after finding the penalty determination defective, the Court could have remanded the matter to the Tribunal for reconsideration.
It expressly declined to do so because:
- the original adjudication dated back to 2004;
- the Tribunal order was from 2009;
- more than 15 years had elapsed since the Tribunal’s decision; and
- the underlying export transactions were even older.
The High Court considered that another remand would unnecessarily prolong an already decades-old dispute and instead decided to “put a quietus” to the case by determining the appropriate penalty itself.
Conclusion
The Delhi High Court held that the ₹25-lakh penalty could not be sustained because the Appellate Tribunal had failed to give adequate reasons for its quantification and had retained the original figure even after substantially reducing the contravention.
Using the earlier adjudication—₹1 lakh for US$17,460—as a comparative yardstick, the Court held that ₹3 lakh would be an appropriate penalty for the surviving contravention of US$44,796.50.
Accordingly:
- the finding of contravention concerning GR Nos. 1, 5 and 6 remained undisturbed;
- the ₹25-lakh penalty was set aside;
- the penalty was reduced to ₹3 lakh; and
- the appeal was partly allowed with no order as to costs.
Case Details
Case: M/s Intersales & Anr. v. Union of India & Anr.
Court: Delhi High Court
Case Number: Misc. Appeal (FEMA) 40/2025
Bench: Justice Navin Chawla and Justice Ravinder Dudeja
Judgment By: Justice Navin Chawla
Reserved On: 28 July 2026
Pronounced On: 8 September 2026
Statutes: Section 50 FERA; appeal under Section 54 FERA read with Section 35 FEMA
Contravention Sustained: Non-realisation of export proceeds under GR Nos. 1, 5 and 6, aggregating US$44,796.50
Original Penalty: ₹25 lakh
Reduced Penalty: ₹3 lakh
Result: Appeal partly allowed; contravention finding left intact but ₹25-lakh penalty reduced to ₹3 lakh for lack of reasoned and proportionate quantification; no costs.
